Wise Words for Entrepreneurs in the Cannabis Industry

Investor Insight: Lori Ferrara, Chicago, IL

She began her career by searching for an alternative; she wanted another option. Her husband was suffering and the only option he had was to take mounds of prescription medication and endure the included side effects. She was never one of those women you’d catch ‘going with the flow’ or running the same way that everyone else was. She was an entrepreneur and she was always seeking her own way among the crowd. Lori Ferrara is the founder of Alexava Holdings, and as an investor, she sees the unique potential for business professionals and creative innovators to grow in the cannabis industry. And it is in the interview below, where she’s as transparent as they come. She’s speaking to all of us and if you are looking to be a part of this industry… she has a few words of the wise for you.

How did your entrepreneurial journey begin?

My father was an entrepreneur and growing up around a family-run business peaked my interest very early on in my life. I worked in the television industry for many years and one day decided I was ready to find my own path by starting my own business.

My father was an entrepreneur and growing up around a family-run business peaked my interest very early on in my life.

What was the motivating factor for you to invest in the cannabis industry?

It was when my husband got diagnosed with Stage 4 cancer and I witnessed the sheer number of prescription drugs he was prescribed to take, along with their given side effects. It was mind boggling! I recently lost my Mom to dementia where I saw the same scenario. I couldn’t get her comfortable or pain-free without multiple drugs and side effects. I then had two friends diagnosed with cancer, but were fortunate enough to live in a state where medicinal marijuana was legal. I liked the fact that they had options other than traditional medicine to relieve their pain and suffering and it was at that point that I wanted to learn more, so I attended my first NCIA symposium in Chicago where I was introduced to the Arcview Group. After meeting many people of similar interests, I decided to join.

One thing many first-time entrepreneurs struggle with is raising money. How would you suggest someone to overcome this problem?

There are three things I always tell people when raising money:

Have a solid business plan. Just having a great product is not enough. Investors want to see how you are going to market your product and how you are going to overcome all the pitfalls every new business faces. The road is littered with great products that never made it.

Have your team in place and be prepared to introduce them to investors. Investors know it takes more than one person to be successful, so if you are surrounded by good people, let the investors get to know them as well.

Most importantly, many investors like to invest in people, not products; therefore, make sure you have your act together when trying to raise money. Being unsure of your plan or unable to answer questions is a sure way to scare them away.

What is your best advice to cannabis entrepreneurs when they pitch their project to you?

Understand your business inside and out. Be willing to work at it full time. Be enthusiastic and have a proven track record even if it is in another line of work. Also, be willing to invest your own money. Don’t over value the company and be prepared to explain how you arrived at its current valuation. Know what sets you apart from your competition. Look for strategic partners who are willing to invest.

Can you share your thinking on how to identify a company as a great opportunity?

Without much history to rely on in this burgeoning industry, most opportunities are going to be considered high risk. I do tend to favor ancillary businesses that have products or services that market to growers or dispensaries. I also like other forms of ingesting cannabis other than smoking it.

What are the key ingredients in building a successful start-up?

A successful start-up begins with successful people. I don’t necessarily like to invest in a product, I prefer to invest in the person and the team behind the company. They must have enough capital to get started and a clear vision on how they will take their idea and turn it into a company.

A successful start-up begins with successful people.

How does the role of the founder evolve as a company goes from seed to early growth to later-stage scaling?

I believe the founder initially must be involved with every aspect of the company. They must not only understand sales and marketing, but the financial aspect as well. As the company grows, they can then focus on those areas that play into their strengths. Finally, as the company matures and continues to grow, they must be secure enough to bring on more experienced business people who can help take their business to the next level.

What is your new knowledge in regards to investing in the cannabis industry?

There are and will continue to be plenty of opportunities to invest in this industry; therefore, take your time! Do your due diligence and never get emotional about any company or product.

As an investor, what are some of the key things you wish cannabis entrepreneurs knew?

I wish they knew this industry is no different than any other – It’s a business first and foremost! Yes, we have issues with access to capital through banks, but otherwise we’re no different. Also, as a new industry we still don’t have the proven medical research to validate the benefits of medical marijuana, so be patient with those who are skeptical. I believe time will eventually prove what many of us already believe. And lastly, if you’re an entrepreneur, you need to know how important it is to be interesting and engaging and be prepared to show your potential investors what it is that is so unique and special about your company.

I wish they knew this industry is no different than any other – It’s a business first and foremost!

What needs to happen in order to create a billion-dollar company in the cannabis industry?

They need to have access to capital and banking. In order for that to happen federally insured banks will need to get involved. Also, we need medial cannabis laws passed in all 50 states and eventually, scientific research showing the clinical benefits.

Want to invest in the cannabis industry?

If you are an angel investor, private investor, or venture capitalist who is looking to invest in start-up companies and businesses in the cannabis sector, you have found the right place.

Thanks for the great interview. Very valuable perspective. I only have one bone to pick. Mainly that “This industry is like any other.” As the black market still retains an overwhelming majority of the total U.S. market, the balance between upholding black market standards and trends, and rebranding the industry as mainstream creates many challenges for seasoned professionals from traditional business. There is a lot of history to overcome, and bad assumptions/habits to change. Though the number is constantly dropping, 95% of marketplace lives underground.

Those servicing that 95%, and those in the medicinal end, have relatively little experience running successful large scale businesses in established legal markets. They will get left in the dust if they don’t have a professional holding their hand. Their urge to move out of the shadows and pay taxes won’t be enough. Many started in the business without a successful professional career to lose, so they lack outside experience. I hope that investors understand the help many will require to reach the next level of success, or many great innovations in the business will be lost.

The rapid rate of breakthroughs in the business will take a long time to penetrate the market, and educate black market users. No doubt those users will be amazed and overwhelmed when they see what’s coming. But, until using cannabis carries the same stigma as having a glass of wine, many users will not do much as brand ambassadors. There is also a large incentive for local shops to produce their own in house products and keep major labels out of their stores. With state laws changing so quickly, each requiring local permits, the balance between local and national companies will be slow to play out.

Marketing restrictions will also play a major role in how brands are advertised. The grey market nature of the business makes all this inherently different. Including the difference between marketing something as medicine, or for fun. It will take time and responsible use/marketing to gain naysayers acceptance.

All that said, I agree that a cannabis business needs to be run like any other business when it can; well planned, organized and reactive. But, with a few more hurdles and turns. This doesn’t apply as much to ancillary businesses. They are clearly a safer bet and seem preferred by Ms. Ferrara and Arcview. I appreciated all of her other insights, and advice to those pitching investors. I think it’s wise for many to in the business to hire a business consultant before pitching investors.

On another note, I’m glad to find this website. There is a real demand to bring the two knowledge bases together (business experience/grower-processor experience). It’s a deeply diverse and volatile business. Many of the most experienced growers and sellers in the business tested too much of their own product to make through their MBA, but they can tell you everything about Cannabis and have a lot to teach the suits about product and process. Conversely, the only way a 20 year grower/breeder/processor will ever cross over is with the help of great experienced business professionals from other industries, with money. They have a lot to teach one another. Kudos to Cashinbis.